Yesterday I talked about why the conversion of SBD to $1 worth of STEEM is not a threat when STEEM is at a low price.

There is a mechanism in the blockchain that prevents the market from being flooded with new STEEM through conversion.

When the market cap of SBD reaches >10% of the market cap of STEEM you will get less STEEM when you convert your SBD's to STEEM. (It basically breaks the peg on the underside until balance is restored)

(I don't think this happened before).

There is currently talk of pegging the price of SBD to $1 permanently by allowing a reversed conversion.

After reading the white paper again I have to conclude it's a bad idea but I love more input.

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Today it's only possible to convert SBD to STEEM.

A reversed conversion would make STEEM to SBD possible.

Example:

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STEEM = $10
SBD = $1

Conversion takes place over 3,5 days. I'm assuming prices are stable in this example.

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10 SBD (= 10x $1 worth of STEEM) ----> 1 STEEM

or

1 STEEM ----> 10 SBD (= 10x $1 worth of STEEM)

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This would make an SBD always worth around one dollar.

Why?

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When SBD is < $1 people would buy SBD (increasing the price) and convert it $1 worth of STEEM.

When SBD is > $1 people would convert STEEM to SBD and sell the SBD (decreasing the price).

Seems like a good idea if it wasn't for the white paper.

In the white paper there is a explicit reason why this is a bad idea:

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If people could freely convert in both directions, then traders could take advantage of the blockchains conversion rates by trading large volumes without changing the price. Traders who see a massive run-up in price would convert to SBD at the high price (when it is most risky) and then convert back after the correction. The Steem protocol protects the community from this kind of abuse by only allowing people to convert from SBD to STEEM and not the other way around. The blockchain decides how and when to create SBD and who should get it. This keeps the rate of SBD
creation stable and removes most avenues of abuse.

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I have to agree with this.

The changes of Market manipulation are too risky.

The risk of the blockchain being flooded with SBD's when STEEM is worth a lot through conversion is too high.

Let's take the latest run up of STEEM to $7.

If a two way conversion would have been possible back then 1 STEEM could have been converted to 7 SBD.

When kept those 7 SBD would now have to be backed by around 6 STEEM.

That's a lot of extra STEEM.

But I don't know if this would be even be possible.

The market cap of SBD will grow so fast and the protection I talked about yesterday will kick in most likely breaking the peg on the underside for a very long time.

My conclusion for now:

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I much rather have an SBD that's always worth a dollar or more then an SBD that is worth something unknown completely.

What is an SBD worth when you can't convert it anymore for $1 worth of STEEM?

Like it said in the white paper:

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The primary concern of Steem feed producers is to maintain a stable one-to-one conversion between SBD and the US dollar (USD). In a market where debt still demands a premium, it is safe to say the market is willing to extend more credit than the debt the community is willing to take on. If this happens a SBD will be valued at more than $1.00 and there is little the community can do

and

It is our belief that these rules will give market participants confidence that they are unlikely lose money by holding SBD purchased at a price of $1.00.

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Please share your thoughts and ideas.

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